An Empirical Analysis of Master Settlement Agreement Impacts on Cigarette Consumptions in the USA

Peter. Y. Wui

Abstract—
In 1998 the US states and tobacco companies made the largest US litigation of the Master Settlement Agreement (MSA) – a grand sum of $246 billion or more until 2025. A rational addiction model was used to analyze the impact of this Master Settlement Agreement on cigarette consumption. A rational addiction economic model considers the effects of current consumption from the quantity of past and future consumption with the current price and income. The panel data of cigarette consumption and prices of all 50 US states and DC were collected with the data of tobacco settlement funds and incomes since 1955 until 2014. An instrument variable panel regression of a modified rational addiction function indicates that the MSA funds could decrease cigarette consumption per capita by an average 0.026 packs per $100M annually in each state.